Impact of Moody’s downgrade of UK government gilts

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25 February 2013

Over the weekend, I found myself musing on the consequences of the Moody’s downgrade of UK government debt for UK pension schemes. Does it really matter: are gilts really safe, what does it mean for the cost of financing the public debt and for pension deficits.

In reality, I believe that the change of credit rating by one of the three big agencies tells us next to nothing new about the safety of gilts and that the Moody’s action is likely to have an extremely limited impact on gilt yields. It will likely continue the recent weakness in sterling as I tweeted on Saturday:

The UK is not in an unusual situation : we all recall the action on the US (2011) and France (2012) : and, of the major bond issuing nations, only Germany and Canada remain in unsullied AAA territory.

I also reviewed my 2011 paper on the impact of the downgrade of US by S&P : virtually all of the lessons are still very pertinent today:

Update available as PDF download (click the icon or go to our Library).

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Author: Martin Veasey
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